Xbox revenue fell again in Microsoft’s latest quarter, but by less than Microsoft itself expected. Hardware and Game Pass are still going backwards, so it’s too early to call a recovery, but this could be the first sign of one.
Microsoft’s results for July to September 2026, the first quarter of its 2027 financial year, were released on 28 October. Xbox revenue came in at $5,379 million, down $129 million (2%) from $5,508 million a year earlier. That’s the fifth quarter in a row that Xbox revenue has fallen year on year.
Microsoft’s quarterly filing puts the fall down to “declines in XBOX content and services and XBOX hardware”. Xbox is now reported as a line within Microsoft’s new Devices and Consumer segment, and last year’s figures have been recast to match.
Xbox, July to September 2026
- Xbox revenue: $5,379m, down 2%
- Content and services: down 2% (down 1% in constant currency)
- Hardware: down 14%
- Game Pass: declined, no subscriber figure given
Better than Microsoft’s own forecast
The reason this isn’t quite as bleak as it looks is what Microsoft said three months ago. On its July earnings call, chief financial officer Amy Hood said: “In Xbox content and services we expect revenue to decline in the mid-single digits. Hardware revenue should decline year over year.”
Content and services, which covers games, in-game content, Game Pass and other subscriptions, cloud gaming and advertising, actually fell just 2%, or 1% in constant currency. That’s better than the guidance. It’s also a big improvement on the previous quarter, when Hood said Xbox revenue fell 10%.
The press release confirms the content and services figure. The filing says the fall was “driven by declines in third-party content and XBOX Game Pass, offset in part by growth in first-party content”. So Microsoft’s own games grew while everything else shrank.
Back in July, Satya Nadella said Microsoft was making “the necessary decisions” to reset Xbox, and that it expects “to return the business to growth in fiscal 2027”. That financial year runs until the end of June 2027. A smaller-than-forecast fall in the first quarter at least fits that story.
Why it’s not a turnaround yet
Hardware revenue fell 14%, “driven by lower volume of consoles sold”. Fewer people are buying consoles. Xbox console prices also went up worldwide on 1 August, partway through the quarter, by $100 to $150 in the US and £130 to £170 in the UK.
Game Pass also went backwards. A year ago, Game Pass growth was helping to hold content and services up. This time it’s one of the reasons that number fell. Microsoft still doesn’t publish subscriber numbers. The last official figure was 34 million, in February 2024.
Some of the better news is in costs rather than sales. Cost of revenue in Devices and Consumer fell $509 million (8%), mainly because of lower amortisation from the Activision Blizzard acquisition. That’s an accounting charge tied to the acquisition, so it helps profits rather than reflecting sales.
So, revenue is still down, but by less than Microsoft forecast, and first-party games are growing. Whether this is the start of a turnaround depends on the next few quarters.
What Microsoft said on the call
On Microsoft’s investor call, Amy Hood gave the forecast for October to December 2026, and it’s a return to growth. “In Xbox content and services, we expect revenue growth to be in the mid to high single digits, up sequentially, driven by the timing of content launches, across both third and first-party,” she said, as reported by TheFly.
She added that the growth won’t last at that pace all year: “With content launch patterns through the year, we expect growth to be the strongest in the second quarter, with some deceleration in Q3 and further moderation in Q4. Hardware revenue in Q2 should decline year over year.”
Satya Nadella said “Minecraft delivered a record quarter, reaching all-time highs in both engagement and revenue”, and that “we enter the Holiday season with one of the strongest first- and third-party lineups in years”, according to Simulation Daily.
So Microsoft expects content and services to grow again this quarter, helped by big holiday releases, while hardware keeps falling. If that forecast holds, this could be where the turnaround starts, but it’s a forecast, not a result yet.
Do you think Xbox has turned a corner? Tell us on X or Facebook.
